Improving, but not robust health

The Rhode Island economy continues to improve and grow, if slowly. The state’s gross domestic product expanded 1.4 percent in 2015 and is projected to increase 1.2 percent in 2016.

The state employed 492,700 workers in November 2016, which represents an increase of 5,500 jobs compared with total employment a year earlier. Job creation, however, was not broad-based, concentrated instead in professional and business services, and in leisure and hospitality services.

The unemployment rate continued to decrease and reached 5.3 percent in November 2016, which is as low as the rate observed in August 2007.

While these indicators are very encouraging, they also show the state has yet to fully recover from the economic downturn. More precisely, Rhode Island’s economy has recovered only 93 percent of all jobs lost during the Great Recession, and the unemployment rate is still higher than that of pre-recession levels (4.8 percent in January 2007). In addition, employment in manufacturing and construction is still significantly below pre-recession levels.

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The relatively slow economic recovery is inherently connected to structural headwinds that have affected Rhode Island’s economy since the mid-1990s, including insignificant population growth, the aging of the population, reduction of the size of the labor force, and difficulties in creating an economic environment that successfully attracts and retains new businesses in the state.

The New England Economic Partnership forecast was developed assuming the status quo, that is that these headwinds are expected to continue to slow down economic growth and job creation in the state over the next few years.

The NEEP forecast projects that from 2016-20, Rhode Island’s real GDP will grow at an annualized rate of 1.7 percent, compared to growth of 2.3 percent in the United States.

Personal income growth is not expected to improve in the 2016-20 period, as the annual average growth rate is forecast to be 2.2 percent compared with 2.5 percent from 2011-15.

While the population has been stagnant, there is evidence that qualified individuals are leaving the state, which reduces the pool of qualified labor. In addition, these trends are not expected to change during the forecast horizon. The population in Rhode Island is projected to be 1.056 million in 2016 and 1.061 in 2020, an annual growth rate of 0.1 percent.

Labor market

In Rhode Island, the unemployment rate has decreased significantly over the last three years. It was 5.3 percent in November 2016, compared with 5.6 percent in November 2015, 6.9 percent in November 2014, and 9.1 percent in November 2013. The state’s unemployment rate will decrease slightly over the next few years, but it is not expected to be much lower than the current rate, reaching 5.2 percent in 2017 and 5 percent by 2020.

The Rhode Island labor force has been roughly at 555,000 individuals since 2014. It is forecast to increase 0.3 percent per year from 2016-20, ending the decade at 562,000. The change compares with a reduction of 0.2 percent from 2011-15.

Total nonfarm employment was 492,700 in November 2016, compared with an average of 484,900 in 2015, 478,800 in 2014 and 495,700 in December 2006. Rhode Island’s nonfarm employment is forecast to increase to 498,200 by 2020. The annual growth rate of employment is forecast to be 0.3 percent from 2016-20 compared with 0.6 percent from 2011-15.

The slow pace of job creation in Rhode Island has been caused by a poor performance of key industries that have not yet recovered all jobs lost during the 2008 Great Recession. As of 2016, employment levels in manufacturing, construction, government, trade, transportation and utilities, information, and financial services were still below pre-recession levels. It is worth noting, however, that together manufacturing and construction account for more than four-fifths of the jobs still to be recovered.

Between 2011 and 2015, 76 percent of all jobs created in Rhode Island were in professional and business services, leisure and hospitality services, and education and health services. It also shows that the government and the information industry experienced job losses over the last five years. Moreover, between 2011 and 2015, the construction industry added just 1,300 jobs, and the manufacturing sector added 1,100 jobs.

The NEEP forecast suggests that from 2016-20, in Rhode Island job creation will be mostly concentrated in three industries. Leisure and hospitality is projected to add 4,800, compared with 2,700 jobs in professional and business services, and 2,600 jobs in education and health services.

NEEP also forecasts that 1,200 jobs will be created in financial services, 1,000 jobs in the construction industry, 600 in government, 600 in information, and 200 jobs in manufacturing. These figures imply that by 2020, employment levels in construction, manufacturing and the government sectors will still be below pre-recession levels.

In Rhode Island, construction activity continues to be at very low levels, and home prices have not recovered in some areas. In 2015, 990 housing permits were issued in the state. Housing permits are estimated to be 1,181 in 2016 and 1,260 in 2020. The current and forecast figures are significantly smaller than the roughly 3,000 permits issued in 2006. •

This piece is adapted from the forecast for Rhode Island that Bryant University economist Edinaldo Tebaldi delivered to the New England Economic Partnership Economic Outlook Conference on Jan. 17. Edinaldo Tebaldi is an associate professor of economics at Bryant University.

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